Do have a read of my blogpost earlier this month - press this link here - for an update on my latest book. I have now completed chapter 10 in which, as referenced in the blogpost, I present the case for MMT as a means for transforming our economy and society. But it's going to take political will.
|Professor Stephanie Kelton, advocate for MMT|
Here is a shortened version of my account of the power of MMT, taken from my draft of chapter 10 in 'Dying to Know'. I hope you are as excited as I am by what I discovered. This is your taster. I have also included a couple of YouTube videos for those of you curious to find out more.
'Stephanie Kelton and other MMT advocates are pointing out the simple truth that any government that issues its own currency can never run out of money. The US government issues its own currency – the dollar. The UK government issues its own currency – the pound sterling. Economists and politicians andthe media have, for whatever reasons, blinded themselves – and us - to this fact and all that follows from such a truth. We can build so much better an economy and society and world if we realize and act on this new understanding.
|Professor Kelton debunking the myths that cost us so much|
MMT describes the real world where the government spends first and then taxes or borrows afterwards. Here in the UK, chancellor Sunak ordered buttons to be pushed to create the billions of pounds of support in this pandemic crisis. He was not waiting on our taxes or loan advances from financiers before doing so.
In fact, our taxes do not actually pay for anything, at least not at the level of central government in the UK nor at the federal level in the US. The government does not need our money. We need their money. We have got the whole thing backwards!
|Warren Mosler - 'the father of MMT'|
Warren Mosler, a successful financial trader on Wall Street in the USA, cottoned on to this truth in the 1990s and is regarded as the father of MMT but the idea itself can be found in earlier economists including Adam Smith and John Maynard Keynes. What MMT describes is our present fiscal reality. In 1971, President Richard Nixon ended the US link to the gold standard, where the dollar was pegged to the value of gold – and all other currencies then pegged to the value of the US dollar. From that act of state, a new range of possibilities opened. But much of our economic and political conversation is still rooted in an outmoded, pre-1971 way of thinking.
Ten minutes of explanation from Stephanie Kelton
To repeat, unlike a household, the government issues the currency it spends. Therefore, it can never go broke. That fact, of course, raises the question of why should the government need to take any money in taxes? Let me take you through the four reasons that are presented by Stephanie Kelton.
First, it is a relatively soft way of ensuring social cohesion and obedience – that is how taxes began their life as nation states began to form. We need citizens willing to go to work and produce things, or train to be doctors or teachers or lawyers and so on, in exchange for the government’s currency which can then be used for personal expenditure including the payment of taxes.
Second, taxation provides a means for the government to manage inflationary pressures. It can reduce the pressure that leads to rising prices.
Third, it provides a powerful tool to reshape the distribution of wealth and income. When most of the income in a society goes to a few people at the top who save rather than spend, economies tend to stagnate.
And finally, taxes can be used to encourage or discourage certain behaviours. Carbon taxes can help lower emissions, as will tax rebates on electric cars.
|Professor Kelton became Bernie Sanders' economics advisor|
The defenders of the status quo say deficits will burden the next generation. Not so. The so-called national debt is a misnomer. It poses no financial burden whatsoever. We need a new name for it.
Those who are resistant to this new way of seeing the world say deficits are harmful because they crowd out private investment. Not so. The reverse is true. It is fiscal surpluses, not fiscal deficits, that eat up our financial savings. When money remains in the government’s treasury, the people cannot access it and their ability to save is diminished.
As part of her doctoral studies, Stephanie Kelton had spent time in England at Cambridge with world-renowned economists. None of them paid any attention to the ideas of Warren Mosler. How could they be wrong and he right? He was, after all, a successful Wall Street investor, not an economist. She did her best to refute Mosler through her research into governmental fiscal and monetary policy. And then came the Eureka moment. She realized MMT was actually sound economics.
In five minutes, Stephanie Kelton explains what a deficit is.
Hers is such an enriching outlook. Having shown the emptiness of contemporary thinking about fiscal deficits, Kelton turned her attention to the deficits that do matter. She writes for an American readership, but these deficits apply to other nation states that are living a half-century behind the curve. Her list of the deficits that really matter is heart-warming – a wonderful litany of the values of a humane and civilised society. In chapter 10 of 'Dying to Know' I give full attention to such deficits.
I hope you have found this account of MMT useful and inspiring. I would be so grateful if this taster for 'Dying to Know' persuades you to press the Follow button at the top of the blog post (on a full screen) - 27 followers to date.